Dubai: Should investors in Gulf stocks sell in May and go away?
Historically stocks have underperformed from May through October compared to the six-month period from November to April, but with the summer season ahead of local investors, combined with the Ramadan and Eid period, many fund managers are advising this could be a good strategy.
All markets posted either a relatively smaller loss or even a gain as in the case of Abu Dhabi in the 6-month period from November 2015 through April 2016 versus the preceding 6-month period, according to Amr Al Alfy. head of global research at Mubasher Financial.
On an average basis historically, Saudi Arabia’s Tadawul index, which is the biggest in the region in terms of market capitalisation, tumbled 5.1 per cent in the six months from May through October, while the index gained more than 7.5 per cent in the remaining period. The Dubai index lost more than 11.5 per cent for the six months to October, compared to 15.5 per cent gains from November through April. Most of the markets in the Gulf tend to produce lower returns during the summer months, and investors prefer November to April to build positions,
On Wednesday, the Dubai index fell for another session, to end at 3,307.61, down 5 per cent from the keenly-watched resistance level.
“We have broken the important 3,400 support and we are losing the monemtum now. We can advise clients to sell in May and go away from the market,” Sebastien Henin, head of asset management at The National Investor told Gulf News, adding, “investors should come back for markets to stabilise”.
Abu Dhabi
The ADX index rewards investors in the winter months more than three times the summer months. According to data, the likelihood of positive returns in both the May–October and November–April periods is equal at 50 per cent a piece. Last year, the ADX index dropped 7 per cent in the May–October period versus 5.1 per cent in the November–April period.
Mahmoud Galal, an economic analyst with Asiya Investments agrees with the views of others.
“The theory ‘Sell in May and go away’ will probably apply this year, but expected to fade away before November. Based on historical performance, global equities tend to be highly volatile in the period from May to October,” Galal said.
Other emerging markets
Fund managers feel that other emerging markets stand a bright chance so long as US interest rate hikes are pushed back to the latter half of the year.
“At times of volatility, I believe it is often best to look for high-yielding stocks with abundant war chest full of cash, which usually means stocks in the consumer and health care space. These companies usually have stable cash flows and stable dividend payout ratios,” Al Alfy said.
In April, about $26 billion (Dh95.4 billion) of inflows came into emerging markets, resulting in MSCI emerging market index gaining 5.8 per cent on year to date basis until April 30, against a flat MSCI developed markets.
An analyst with Lombard Odier agrees.
“Within emerging markets, the best valuations are to be found in Latin America, but the strongest economic fundamentals are in Asia. In emerging markets, we prefer companies with strong corporate governance,” Samy Chaar, Chief Economist at Lombard Odier told Gulf News recently.
But with Gulf markets, analysts point out that history repeats itself. “In general, history seems to repeat itself often, but not all the times, so we cannot predict what markets will do next beforehand, except that they will “fluctuate” as J.P. Morgan once said when asked about what the market will do next. That said, it is interesting to see this “sell in May” strategy manifest itself from time to time,” Al Alfy said.
